Cavium Outlook Cut Sends EZchip to 8-Month Low: Israel Overnight

Ultra-Orthodox Jewish men talk in the Me'a She'arim neighborhood in Jerusalem, Israel. The shekel weakened for the first time in four days, headed for the worst performance since 2001. Photographer: Ahikam Seri/Bloomberg

Dec. 29 (Bloomberg) -- EZchip Semiconductor Ltd., the
Israeli maker of network processors, dropped to the lowest level
in eight months in New York after U.S. competitor Cavium Inc.
reduced its sales forecast for the fourth quarter.

EZchip fell 4.3 percent to $28.42 on the Nasdaq Stock
Market, paring its gains this year to 1.1 percent. The Bloomberg
Israel-US 25 Index of the largest Israeli companies traded in
New York declined 1.9 percent, the most in a week, led by Teva
Pharmaceutical Industries Ltd. EZchip shares in Tel Aviv
declined 2.3 percent to 108.60 shekels or $28.51 at the 4:30
p.m. close in Tel Aviv. The benchmark TA-25 index dropped 2.5
percent to 1,085.59, bringing the decline this year to 18
percent.

Cavium, which makes chips for communication networks, on
Dec. 27 lowered its revenue forecast to no more than $57 million
from an earlier projection of at least $61 million. Two weeks
earlier, Intel Corp., the world’s largest chipmaker, cut its
fourth-quarter forecast by about $1 billion.

“We come away incrementally more cautious about EZchip,”
said Daniel Berenbaum, an analyst at MKM Partners LP in
Stamford, Connecticut. “Service provider weakness will likely
take its toll on everyone before this is done.”

The Bloomberg Israel-US 25 Index dropped 1.9 percent
yesterday to 84.53, following U.S. stocks lower as the European
Central Bank’s balance sheet soared to a record after a surge in
bank lending to stem the region’s debt crisis. The Standard &
Poor’s 500 Index dropped 1.3 percent and the Nasdaq Composite
Index retreated 1.3 percent.

GDP Forecast

The shekel was little changed at percent to 3.8093 a
dollar. The currency is down 7.5 percent this year, poised for
the worst performance since 2001.

The economy probably grew 4.8 percent this year, the
Central Bureau of Statistics said today, below its 4.9 percent
estimate on Oct. 11. Israeli growth has been slowing as the debt
crisis in Europe, one of the nation’s biggest trading partners,
crimps demand for exports such as electronic components. Exports
of goods and services rose 4.5 percent in 2011, after gaining
13.4 percent in 2010, the bureau said.

The Bank of Israel left its benchmark interest rate
unchanged on Dec. 26 after reducing it twice in three months,
saying the economy was expanding and policy makers want to
retain their ability to react to future developments.

“The Bank of Israel probably won’t keep its ammunition of
rates in the cartridge for a much longer time,” Amir
Kahanovich, the chief economist at Clal Finance Brokerage Ltd.
in Tel Aviv, wrote in an e-mailed report. Policy makers will
probably reduce the rate by a quarter percentage point to 2.5
percent in February, he wrote.

Israel, whose population of 7.7 million is similar in size
to Switzerland’s, has about 60 companies traded on the Nasdaq,
the most of any country outside the U.S. after China. It is also
home to the largest number of startup companies per capita in
the world.

Sales Forecast

Yokneam, Israel-based EZchip, whose customers include
Juniper Networks Inc. and Cisco Systems Inc., had gained as much
as 34 percent in the seven months until July 7 before slumping.
The shares in New York fell to the lowest level since April 19
yesterday.

EZchip, whose products allow for quicker data delivery,
will probably report a 20 percent drop in sales in the fourth
quarter to $13.7 million, according to the median estimate of
seven analysts surveyed by Bloomberg. The company on Nov. 2 said
fourth-quarter revenue would be as much as 30 percent below the
$18.7 million it reported for the third quarter.

“There is no change in the forecasts we have given
regarding the fourth quarter,” EZchip Chief Executive Officer
Eli Fruchter said today by telephone.

Cavium lowered its revenue estimates after sales to
enterprise, service providers and consumer markets were
“weak,” the company said in a statement on Dec. 27.

Teva, the world’s largest maker of generic drugs, dropped
2.1 percent to $40.79 in New York. The Tel Aviv shares declined
3 percent to 153.40 shekels, or the equivalent of $40.24 today.

Perrigo Co., the largest U.S. maker of generic over-the-counter drugs, dropped 1.8 percent to $98.90 in New York
yesterday. The Israeli shares declined 2.3 percent to 374
shekels, or the equivalent of $98.10 today.